Quarterly report pursuant to Section 13 or 15(d)

Change in Accounting for Revenue Recognition and Retirement-Related Benefits (Notes)

v3.10.0.1
Change in Accounting for Revenue Recognition and Retirement-Related Benefits (Notes)
9 Months Ended
Nov. 03, 2018
Change in Accounting for Revenue Recognition and Retirement-Related Benefits [Abstract]  
Accounting Changes [Text Block]
Changes in Accounting for Revenue Recognition and Retirement-Related Benefits
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) Topic 606 (ASC 606), Revenue from Contracts with Customers, a replacement of Revenue Recognition (Topic 605). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have adopted the new standard using the full retrospective approach on February 4, 2018, and with such adoption our revenue recognition policies related to gift card breakage, customer loyalty programs, credit card income and principal versus agent considerations were changed. Whereas we previously recognized gift card breakage, net of required escheatment, 60 months after the gift card was issued, we now recognize gift card breakage, net of required escheatment, over the redemption pattern of gift cards. Additionally, whereas we utilized the incremental cost method to account for our customer loyalty programs, we now account for our customer loyalty programs as revenue and are required to defer a portion of our sales to loyalty rewards to be earned by reward members for a future discount on a future sale.

We also changed the classification of profit sharing income earned in connection with our private label credit card and co-branded MasterCard® programs owned and serviced by Synchrony Financial (Synchrony).  Under our agreement with Synchrony, we receive cash payments from Synchrony based upon the performance of the credit card portfolios.  Previously, the income we earned under our agreement with Synchrony was included as an offset to SG&A expenses. In connection with the adoption of the new standard, we changed our presentation to include such income in a separate line item described as Credit income and other. Further, we adjusted our principal versus agent considerations for certain contracts and where we previously considered ourselves to be the agent (report net sales) under these contracts based on the risk and rewards of the arrangement, we now consider ourselves to be the principal (report gross sales) based on our control of the good or service before it is transferred to the customer. Lastly, we changed our balance sheet presentation of our sales return liability and where we previously reflected the balance as a net liability, we now recognize a gross refund liability for the sales amounts expected to be refunded to customers and an asset for the recoverable cost of the merchandise expected to be returned by customers.

In March 2017, the FASB issued Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires companies to present the service cost component of net periodic pension cost in the same line items in which they report compensation cost. Companies will present all other components of net periodic pension cost outside of operating income, if this subtotal is presented. As required by the standard, we retrospectively adopted ASU 2017-07 on February 4, 2018, and we changed the presentation of our Consolidated Statement of Operations to exclude the Pension line item and to reflect the service cost component of our pension expense/(income) in SG&A and to reflect all other cost components in a new separate line item below operating income/(loss) described as Other components of net periodic pension cost/(income).
These changes have been reported through retrospective application of the new policies to all periods presented. The impacts of all adjustments made to the financial statements are summarized below:
Consolidated Statements of Operations
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2017
 
October 28, 2017
($ in millions, except per share data)
Previously Reported
 
As Adjusted
 
Effect of Change
 
Previously Reported
 
As Adjusted
 
Effect of Change
Total net sales
$
2,807

 
$
2,817

 
$
10

 
$
8,475

 
$
8,503

 
$
28

Credit income and other

 
69

 
69

 

 
235

 
235

Cost of goods sold (exclusive of depreciation and amortization)
1,852

 
1,859

 
7

 
5,498

 
5,516

 
18

Selling, general and administrative (SG&A)
840

 
920

 
80

 
2,525

 
2,793

 
268

Pension
9

 

 
(9
)
 
3

 

 
(3
)
Restructuring and management transition
52

 
52

 

 
295

 
175

 
(120
)
Operating income/(loss)
(79
)
 
(78
)
 
1

 
(131
)
 
(31
)
 
100

Other components of net periodic pension cost/(income)

 
(2
)
 
(2
)
 

 
90

 
90

Income/(loss) before income taxes
(157
)
 
(154
)
 
3

 
(410
)
 
(400
)
 
10

Net income/(loss)
$
(128
)
 
$
(125
)
 
$
3

 
$
(370
)
 
$
(360
)
 
$
10

Basic earnings/(loss) per common share
$
(0.41
)
 
$
(0.40
)
 
$
0.01

 
$
(1.19
)
 
$
(1.16
)
 
$
0.03

Diluted earnings/(loss) per common share
$
(0.41
)
 
$
(0.40
)
 
$
0.01

 
$
(1.19
)
 
$
(1.16
)
 
$
0.03

Consolidated Statements of Comprehensive Income/(Loss)
 
Three Months Ended
 
Nine Months Ended
 
October 28, 2017
 
October 28, 2017
($ in millions)
Previously Reported
 
As Adjusted
 
Effect of Change
 
Previously Reported
 
As Adjusted
 
Effect of Change
Net income/(loss)
$
(128
)
 
$
(125
)
 
$
3

 
$
(370
)
 
$
(360
)
 
$
10

Consolidated Balance Sheets
 
October 28, 2017
 
February 3, 2018
($ in millions)
Previously Reported
 
As Adjusted
 
Effect of Change
 
Previously Reported
 
As Adjusted
 
Effect of Change
Merchandise inventory
$
3,365

 
$
3,406

 
$
41

 
$
2,762

 
$
2,803

 
$
41

Other accounts payable and accrued expenses
1,056

 
1,081

 
25

 
1,119

 
1,156

 
37

Reinvested earnings/(accumulated deficit)
(3,376
)
 
(3,360
)
 
16

 
(3,122
)
 
(3,118
)
 
4

Consolidated Statements of Cash Flows
 
Nine Months Ended
 
October 28, 2017
($ in millions)
Previously Reported
 
As Adjusted
 
Effect of Change
Cash flows from operating activities:
 
 
 
 
 
Net income/(loss)
$
(370
)
 
$
(360
)
 
$
10

Inventory
(511
)
 
(510
)
 
1

Accrued expenses and other
(88
)
 
(99
)
 
(11
)